Frost & Sullivan: A Post-Brexit View of the UK High-Tech Sector

Technology research firm, Frost and Sullivan has issued an assessment of the UK hi-tech market in the wake of the nation’s vote to leave the EU after a long referendum battle (Brexit) ended on 23rd June.

Composed by Frost & Sullivan’s Ajay Sule, Practice Director EIA, and Adrian Drodz, Research Director, Digital Transformation, the assessment identifies four key points that need to remain in focus in a post-Brexit world:

Skills shortage – the UK tech sector and all of the innovation that surrounds it needs highly skilled people to flourish. Today, it is able to tap into the EU – but even then, we still have a shortage in certain areas. By putting a brake on immigration, companies may struggle to find the people they need to drive their businesses forward. In addition, EU citizens working in the high-tech sector may feel their careers are best served elsewhere – there’s a real possibility that many will seek opportunities elsewhere in Europe.

The role of the UK as a Digital hub – for many firms seeking to harness opportunities, the UK has long been seen as a gateway; especially for US firms, due to the cultural affinity between the two countries. Start-ups have also been attracted by the cultural of innovation fostered in London in particular. With such uncertainty, will major IT providers want to retain their European headquarters in the UK, or will the lure of operating within the EU work to the benefit of Paris, Frankfurt and others? In addition, not being a part of the Digital Single Market could result in further isolation and deprive the UK of the benefits of cross border online trade / e-commerce.

Cutting the red tape, or just introducing more? – Data protection and regulation has been an area of hot debate for many years. While the UK may well adopt a variant of the EU General Data Protection Regulation, Brexit may make it harder for companies to navigate legislation and ensure they abide with the varying rules in different countries. Knowing where data is stored will also become more important than ever, to ensure that data is secure and privacy is maintained. Additionally, the EU has been driving policy on how US firms collect and manage user data it collects from Europe and negotiated the “EU-US Privacy shield” agreement. With Brexit, the UK will not be a part of this agreement post 2018 and will need to negotiate new terms directly.

Access to funding and credit – although the Bank of England has been quick to state it has plans in place to support the UK economy and the financial services sector, concerns will be raised with regards to the ability to obtain credit and funding – especially among start-ups. The European Investment Fund (EIF) is the largest investor in UK venture capital firms – whether this funding stream remains in place, and for how long, is a major question mark.

“There are many more issues that will come to the fore over the coming months as the dust starts to settle,” Sule and Drodz noted in the assessment. “For example, pan-European contracts will need to be renegotiated, and IP/trademarks may require separate treatment for the UK and the EU. Individuals and companies will be assessing their options – and many will not wait until formal exit negotiations are concluded to put their plans in place. Nevertheless, the UK has long demonstrated it has an innovative and resilient tech sector and we expect it to weather the initial turbulence and uncertainty resulting from the Brexit vote.”

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